Won Trades Near 6-Month Low Amid Europe Debt Woes; Bonds Gain

March 21 (Bloomberg) -- South Korea’s won traded near a
six-month low as concern that Europe’s debt crisis will escalate
was countered by the Federal Reserve signaling its record bond-buying program will continue. Government bonds rose.

The Standard & Poor’s 500 Index snapped a three-day decline
as Fed Chairman Ben S. Bernanke said the U.S. labor market must
improve further for the central bank to consider reducing its
record monetary easing. The won declined yesterday after South
Korea said it will consider curbing capital flows, and Cypriot
lawmakers rejected an unprecedented levy on bank deposits. The
European Central Bank will probably delay a decision on
continued support for Cyprus’s banks, two people familiar with
the deliberations said yesterday.

“Ongoing European debt concerns from Cyprus and worries
about possible government steps to stem capital flows are likely
to” prevent the won from strengthening, said Hong Seok Chan, an
analyst at Daishin Economic Research Institute in Seoul.
“Investors are somewhat relieved that the U.S. won’t be
tightening policy yet.”

The won closed at 1,115.97 per dollar in Seoul, compared
with 1,116.30 yesterday, according to data compiled by Bloomberg.
It touched 1,119.95 yesterday, the weakest since Sept. 27. One-month implied volatility, a measure of expected moves in the
exchange rate used to price options, fell 28 basis points, or
0.28 percentage point, to 8.62 percent.

Financial Taxes

Eun Sung Soo, director general at the finance ministry,
told reporters yesterday that both new measures and tightening
of existing ones will be considered to curb capital flows.
Policy makers will consider “various” financial taxes if
needed and closely monitor foreign-currency debt, he said.

The Kospi Index of shares fell after a network shutdown
caused by a cyberattack triggered its biggest drop yesterday in
two months. Hackers temporarily shut down computer networks at
South Korean broadcasters and banks yesterday in the biggest
cyberattack on the nation in two years, prompting a probe into
possible links with North Korea.

North Korea’s state-run radio issued an air-raid alert
around 9:32 a.m. local time today, Yonhap News reported, citing
the North’s state media. The alert was lifted at 10:29 a.m. and
may have been part of a drill, it said.

“Geopolitical risks have emerged,” after the North’s air-strike alert, said Lee Dae Ho, an analyst at Hyundai Futures
Corp. in Seoul. “While concerns about Cyprus are still
lingering, the Fed’s stance that it will continue its stimulus
program is likely to limit further declines in the won.”

The yield on South Korea’s 2.75 percent bonds due December
2015 dropped one basis point 2.59 percent, according to prices
from Korea Exchange Inc.